Pbb attracted Eu1.1bn of orders to a Eu500m five year Pfandbrief today (Tuesday), benefitting from pent-up demand for intermediate paper and with the maturity attractive in a risk-off market. A Eu250m long six year issue for Berlin Hyp was more modest, but this was attributed to its size.

Although the euro covered bond market was reopened by a succession of long dated German benchmarks – starting with a Eu750m long nine year for MünchenerHyp on 16 August – bankers have throughout the summer said the five to seven year range will be the sweet spot for euro covered bond supply in post-summer reopening. This prediction was bolstered by a twice subscribed Eu500m short seven year issue for BRFkredit on Wednesday.

Deutsche Pfandbriefbank (pbb) leads BNP Paribas, Commerzbank, Goldman Sachs, NordLB and UniCredit this morning launched the new Eu500m no-grow five year mortgage Pfandbrief with guidance of the mid-swaps minus 7bp area.

Guidance was then revised to the minus 9bp area, plus or minus 1bp will price within range, before the spread was fixed at minus 10bp. The book closed around one-and-a-half hours after launch, standing at Eu1.1bn post-reconciliation, including 59 accounts.

“They did convincingly and had the deal very quickly executed,” said a syndicate banker away from the leads. “It is an impressive price.”

The deal is the tightest five year euro benchmark covered bond of the year, and the final spread was deemed to have offered a new issue premium of around 2bp, with bankers seeing pbb March 2022s and January 2023s trading at around minus 12bp, mid.

The deal was priced with a coupon of 0.05% to yield 0.064%.

The new issue is pbb’s second euro benchmark covered bond this year, with its last a Eu500m 4.5 year in February. Only one benchmark Pfandbrief with a maturity of five years or shorter has been issued in the interim, a Eu500m three year for HSH Nordbank, with most benchmark German issuance focussed at the longer end this year.

“After today’s deal, I am still convinced that doing something in the intermediate part of the curve is the most advisable route to follow,” said a syndicate banker away from pbb’s leads. “Deutsche Pfandbriefbank were today in the arguably lucky position that the price they were going to offer was always going to be slightly less aggressive than what the rest of the German pack would try to achieve in five years, which meant they could be pretty sure they would be able to offer a positive yield and a bit of a coupon.

“Investors will have appreciated this trade given that there has not been much German supply in five years due to the yield and spread situation.”

European markets opened lower this morning on the back of renewed geopolitical concerns after another North Korean missile launch today and a stronger euro, with the Stoxx Europe 600 index down by as much as 1.7% to a six month low.

Covered bond spreads were not affected and bankers said the demand for pbb’s deal showed the primary market was resilient. However, they noted that 10 year Bund yield fell 4bp to 0.32% this morning on the back of the safe haven bid.

“The rates move provides a bit of backlash potential at the long end,” said one, “which in turn favours the short to medium term transactions like pbb’s, where you are not as harshly hit if things go wrong in terms of overall yields.”

Berlin Hyp leads BayernLB, DekaBank and HSBC launched the Eu250m no-grow January 2024 mortgage Pfandbrief this morning with guidance of the mid-swaps minus 14bp area and later fixed the spread at 14bp. The deal is understood to have been marginally oversubscribed.

“It was not oversubscribed in the same manner as benchmark trades, but that is not surprising,” said a banker. “The important thing is that the choice of tenor was in principle the right one today, but the share of investors for sub-benchmarks like this is simply smaller than for Eu500m deals.”

Bankers said the deal offered a 3bp premium versus Berlin Hyp’s benchmark outstandings, with the issuer’s October 2023s and May 2024s seen at minus 17bp, mid.